"drop-in fuel" manufactured liquid fuel

Yep, it sounds like synthetics made from biomass, biogas, or natural gas (methane). The easiest and least expensive liquid fuel to produce from these sources is methanol. The epa has allowed up to 5% methanol to be blended in gasoline if other rules are followed.

Methanol is lower polluting than gasoline and can work in a higher compression engine. It does have cold temperature start problems and an invisible flame, which means it should be blended with gasoline to at most M85. Successful trials of M85 have been run in california, and many races have been run on M100. Because M85 has a lower energy density and is more corrosive than gasoline it is not a drop in fuel though. Larger fuel tanks, higher volume injectors, and less corrosive materials must be used in cars.
http://www.nytimes.com/2012/02/24/opinion/methanol-as-an-alternative-to-gasoline.html?_r=1

You need about 1.75 gallons of M85 to have the same energy content as 1 gallon of E0. Today's methanol price would make that cost about $3.25 when all other costs are added into it.

 

Congress has mandated that blendable alternate fuels be made from biomass and a number of venture capital firms are building plants right now (so-called bio-refineries). The ventures I am aware of are making drop-in gaso and diesel (in other words hydrocarbons) from wood etc. Sometimes they use natural gas as a co-feed. One effort has shifted to nat gas the main feed, but this probably does not qualify for the subsidy from the legislation. I should cite the exact law but I do not have it handy. This is indeed something new but short term technical feasibility and long term economic viability are the key questions. Various approaches are being tried. Short term economic feasibility is provided for by US taxpayer and venture capital.

 

...so while it is possible to make liquid fuels from nat gas and coal etc, Congress chooses to prefer biomass such as wood and switchgrass as the main feeds for regulatory encouragement